0 Chapter 4 Assignment 12 13. Click here to read the eBook: Profitability Ratios 14. 15. 16. 17. Problem Walk-Through RETURN ON EQUITY AND QUICK RATIO Lloyd Inc. has sales of $700,000, a net income of $49,000, and the following balance sheet: Cash $61,600 Accounts payable $89,600 Receivables 182,560 Notes payable to bank 33,600 Inventories 571,200 Total current liabilities $123,200 Total current assets $815,360 Long-term debt 163,520 Net fixed assets 304,640 Common equity 833,280 Total assets $1,120,000 Total liabilities and equity $1,120,000 The new owner thinks that inventories are excessive and can be lowered to the point where the current ratio is equal to the industry average, 2x, without affecting sales or net income. a. I inventories are sold and not replaced (thus reducing the current ratio to 2x); if the funds generated are used to reduce common equity (stock can be repurchased at book value); and if no other changes occur, by how much will the ROE change? Do not round intermediate calculations. Round your answer to two decimal places. % b. What will be the firm's new quick ratio? Do not round intermediate calculations. Round your answer to two decimal places. Check My Work (5 remaining) 0 Icon Key